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PREPA’s situation ‘complex,’ result of ‘perfect storm’

The Puerto Rico Electric Power Authority’s transformation will require a strong energy policy as well as an implementation strategy that considers the island’s “complex situation.”

Such was the opinion of Tomás J. Torres, executive director of the Puerto Rico Institute for a Competitive and Sustainable Economy, in testimony presented before the U.S. House of Representatives Committee on Natural Resources during a hearing on “The status of the Rebuilding and Privatization of the Puerto Rico Electric Power Authority.”

“This strategy must consider the utility’s legacy debt and the massive resources needed to rebuild the grid,” he said.

The “Build Back Better Plan” has estimated the cost of rebuilding the power system is $17.6 billion; the Central Office for Recovery Reconstruction and Resiliency (COR3) has estimated this effort to be $26 billion. 

In addition to these amounts, there are another $10 billion of PREPA’s debt, now in bankruptcy proceedings under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), he noted.

“The scale of these amounts indicate that funds required to rebuild the electrical grid cannot come from PREPA and its costumers alone or solely from privately-owned capital investments,” he said. “Even if available, relying primarily in privately-owned capital investments would result in very high electricity rates, well beyond Puerto Rico electricity consumers’ ability to pay.”

As far as policy goes, the Puerto Rico House and Senate recently passed the “Puerto Rico Energy Policy Act,” which is now pending for Gov. Ricardo Rosselló’s signature.

During his turn, Rodrigo Masses, president of the Puerto Rico Manufacturers Association, said PREPA’s failures and its obsolete grid in the aftermath of Hurricanes Irma and María “symbolize the challenges we face moving forward.”

“We firmly believe that if PREPA’s transformation is done properly, with transparency, economic development will soon follow. On the other hand, if this transformation is not done properly, the consequences could be detrimental to our chances of economic growth, and to our quality of life,” he said during the hearing chaired by committee Chair Raúl Grijalva, who was in Puerto Rico last month to gather information on failed federal recovery efforts in the wake of Hurricane María and on the ongoing economic and social impacts of fiscal austerity.

“We share with many members of this Committee the goals of transforming PREPA, strengthening the local energy regulator, and making sure that the procurement process by PREPA and the government of Puerto Rico is done with transparency,” he said.

In his testimony, Masses outlined three key points that the PRMA believes should be addressed to improve Puerto Rico’s electrical system: transparency in the sale of PREPA’s assets; a new-forward-thinking regulatory framework; and federal funding for the island.

“PREPA’s potential transactions over its assets assume that the grid will be rebuilt with federal funding. To this date, no sources of funding for this plan — estimated in $17 billion — have been appropriated or even identified,” Masses said. 

“Despite the inexistence of these funds, the candidates on the competitive process to manage PREPA’s assets operate under the assumption that such federal funding will come through,” he said. “Puerto Rico’s rate payers need to know whether we will end up paying the cost of rebuilding the grid from our energy bills – on top of whatever amounts we end up paying as a result of the restructuring of PREPA’s debt under Title III of the Puerto Rico Oversight, Management and Economic Stability Act.”

Puerto Rico Resident Commissioner Jenniffer González confirmed that in 2018, Congress allocated $2 billion to improve Puerto Rico’s grid. 

“However, to date, that money has not been disbursed. Hurricane season is just 53 days away,” she said. “It’s vital this funding gets to the island. I will be asking about its status and how to accelerate its disbursement.”

Privatization won’t solve ‘chronic problems’
Sergio Marxuach, director of Public Policy of the Center for a New Economy, said PREPA’s “chronic problems” will not necessarily be solved by privatizing the power grid.

“If the ongoing privatization process is limited to transferring a corrupt company from the public sector to a group of corrupt investors in the private sector, we will have achieved absolutely nothing,” said Marxuach. “Privatization alone will not magically solve Puerto Rico’s electricity problems.”

As established by the other panelists, Marxuach also stressed the need for a robust regulatory structure “to prevent companies from unfairly raising prices or jeopardizing Puerto Rico’s clean energy goals with long-term investments in non-renewable source generation infrastructure.”

Marxuach laid out the CNE’s main proposals on the energy issue, namely: maximizing the installation of new generation based on renewable sources; maintaining, but not increasing, the capacity PREPA has based on natural gas; progressively removing the generation units that use diesel and coal, given PREPA’s excess capacity; and gradually eliminating all generation based on natural gas as Puerto Rico approaches its stated goal of generating 100% of its electricity from renewable sources by 2050.

Author Details
Business reporter with 25 years of experience writing for weekly and daily newspapers, as well as trade publications in Puerto Rico. My list of former employers includes Caribbean Business, The San Juan Star, and the Puerto Rico Daily Sun, among others. My areas of expertise include telecommunications, technology, retail, agriculture, tourism, banking and most other areas of the economy.

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Comments (2)

  1. The short answer for public PREPA is to wait for Federal Funding to do all that good intentions think possible is not going to happen. The main reason is that better answers are possible.

    The simplest is to move the people to where power is cheap and in place and jobs are available. The new PR capital is Orlando FL. Not the only answer, but one that individuals can make happen faster than the PREPA plan that will not happen. Combined with it is private alternative energy from new technology that is taking shape faster every day. People will ultimately make their own energy or buy it from less costly sources.

    Look for hydrogen and solar/wind solutions in regional or local settings as the better answer to Grid based power.

  2. See our newsletter PR Economic Pulse of March 2019 where our firm offers a workable alternative on how to evaluate privatization projects for PREPA. Yes, the situation is complex, but there are SOLUTIONS. It is frustrating to see how the discussion on all fronts is so superficial and not geared to solutions.

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